Venezuelan Oil Output

OPEC Seeks to Bridge Gulf Over Venezuelan Oil Output
by Adam Smallman, Dow Jones Newswires
FWN Financial News 9/13/2007
URL: http://www.rigzone.com/news/article.asp?a_id=50129
VIENNA, Sep 13, 2007

Staff from the Organization of Petroleum Exporting Countries have met with officials from member country Venezuela in a bid to bridge the gulf between the country's stated official oil production level and estimates a third lower by news agencies and institutions, a gap that some say has undermined the credibility of the Latin American nation's oil policies.

Fuad Al-Zayer, who leads OPEC's data services department, said Thursday that he and his colleagues were working closely with Venezuelan officials to narrow the differences to the point where OPEC no longer has to use secondary sources, such as energy information provided by Platts, a unit of McGraw-Hill Co. (MHP), or the Paris-based energy watchdog the International Energy Agency.

Dow Jones Newswires is also a provider of estimated oil output by OPEC member countries.

"We are there to provide them with facilities, to show them how they can coincide with what the secondary sources are saying," al-Zayer said after a press conference on OPEC energy data.

"But there is a gap between the two. We are hoping that they gap will become closer."

Venezuela has longed claimed its oil output is far higher than secondary sources suggest, with the official number around 3.2 million barrels a day, against estimates by Dow Jones Newswires, Platts and the IEA of around 2.4 million barrels a day.

Some analysts attribute the difference to the government of President Hugo Chavez covering up sharp oil production losses experienced in the wake of a clear-out of veteran staff from the state-run Petroleos de Venezuela S.A., or PdVSA, following a crippling strike in December 2002 that lasted two months.

The government subsequently said output levels rebounded to pre-strike levels of around 3.1 million barrels a day.

Some analysts have linked the stated production level to Venezuela's reluctance to lose its influence inside OPEC, which has output targets in place for 10 of its 12 members, including Venezuela.

Al-Zayer said Venezuela's production of heavy, tar-like crude oil may have colored the picture of its actual output.

"We know Venezuelan officials are meeting with Platts and the IEA to show them what's happening," al-Zayer said.

"Some of the problems are that heavy oil is produced in Venezuela and maybe some of the agencies don't count it. So we are trying to iron out this."

However, the International Energy Agency, as an example, clearly breaks out production of Venezuela's Orinoco-derived heavy crude, which it said in Wednesday's monthly oil market report contributed 475,000 barrels a day to Venezuela's output of 2.34 million barrels a day.

OPEC is incorporating secondary-sourced data in its estimates as "that is what the market believes in these days and eventually we hope that we won't do that in the future," Al-Zayer said.

Chavez Threatens Second TV Shutdown

Chavez Threatens Second TV Shutdown as Protests Mount
By Guillermo Parra-Bernal and Alex Kennedy
May 29 (Bloomberg)

Chavez said he had ``no fear'' of criticism he might face for closing Globovision, a 24-hour news channel that he accused of trying to instigate his assassination. The threat follows the May 27 shutdown of Radio Caracas Television, Venezuela's most- watched TV network.

Venezuelan President Hugo Chavez threatened to shut down the country's last opposition television station as students took to the streets for a third day, protesting what they say is a crackdown on free speech.

``They're trying to light the streets on fire and justify violence,'' Chavez said in a speech to supporters televised from Vargas state. ``I call on the people in the slums to be alert to defend the revolution.''

The three days of disorder in Caracas and other major cities marks the longest stretch of anti-Chavez demonstrations since March 2004, when opposition-led protests demanding a recall referendum left nine dead. Clashes across Venezuela between the police and marchers injured at least 40 yesterday, Globovision reported.

The yield on the 2019 government bond, known as TICC, jumped 4 basis points to 4.86 percent, the highest since March 26, according to Econoinvest Casa de Bolsa CA prices. The price dropped 0.4 to 103.50 cents on the dollar at 5 p.m. New York time.

The cost of buying protection on $10 million of Venezuela's bonds for five years had its biggest jump since Jan. 9, surging 17 percent to $198,000, according Credit Market Analysis. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on the ability of countries or companies to repay debt. An increase in price suggests deterioration in credit quality.

University students gathered in eastern Caracas while Chavez supporters rallied downtown to support the government's refusal to renew the license of RCTV, as the country's oldest broadcaster was known.

Communications and Information Minister William Lara added pressure on non-state television outlets yesterday, asking for an attorney-general's probe of Globovision Tele CA and Time Warner Inc.'s Cable Network News for allegedly inciting violence. Globovision, founded in 1994, is owned by an investor group called Corporacion GV Inversiones CA.

RCTV, which had a national distribution, and Globovision, available only in Caracas and Carabobo state, were the only prominent stations critical of the government. xxx Coup xxx In an interview yesterday, Globovision General Manager Alberto Federico Ravell called the accusations ``ridiculous.''

``Chavez has just gone too far this time,'' Ruben Briceno, 22, a Central University of Venezuela student majoring in social work, said in an interview. ``First it was the shutdown of Radio Caracas. What will come next?''

Chavez said today the students are being manipulated by people he didn't cite. National Assembly Vice President Roberto Hernandez said the protests are organized by opposition parties seeking to overthrow Chavez.

``They will not succeed in weakening this government,'' Hernandez told reporters in Caracas Interior and Justice Minister Pedro Carreno said state intelligence and police services were prepared to quell any effort to destabilize the county.

In the days leading up to the RCTV shutdown, Chavez said the company's executives had used the network to help incite a coup that ousted him from office for two days in 2002. While RCTV covered his ouster without interruption, it failed to report his government's return to power and ran cartoon shows.

During the coup and strike, the four biggest private stations -- RCTV, Venevision, Televen and Globovision -- ran commercials calling for Chavez to resign, said Daniel Hellinger a professor of political science at Webster University in St. Louis and author of several books about Chavez. ``They say I'm a tyrant,'' Chavez said today. ``Who accuses me? Serpents.''

Globovision television station showed students putting up barricades on the streets of El Junquito, a town about 20 kilometers (12 miles) east of Caracas. Another group blocked traffic for a time on the Prados del Este highway in Caracas, creating logjams, it said.

Groups of RCTV supporters held a demonstration in front of the Organization of American States' local offices. The police deployed 4,000 officers to protect the surroundings of the OAS offices.

RCTV's shutdown, coupled with the probes of CNN and Globovision, will intensify international scrutiny of free speech in Venezuela, Miguel Henrique Otero, editor-president of Caracas-based El Nacional, the nation's second-most read newspaper, said in an interview yesterday.

``Press relations with governments with authoritarian inclinations are always difficult,'' said Paul Knox, chair of school of journalism at Ryerson University in Toronto. ``At this point, it's fair to say that the Chavez government has an authoritarian inclination.''

Big Oil in Orinoco Patch

Some words on this before I turn it over to the sponsors. When you read these stories always be thinking of the present situation. Saudi through OPEC is telling Angola it shouldn't count on more than about 2.0 mbpd - probably in line with what would be equitable given reserve/production standards of OPEC. Meanwhile Venezuela is in a constant running war of words with the US. A farce. We are their biggest customer. Citgo. They are trying to get the Orinoco "certified." They need this to be able to pump more oil. Without certification of these as reserves(effectively putting them on Saudi turf), Saudi would never let them exceed 3.0 mbpd. At the same time we have some saying Saudi is on an 8% downslope. So what is going on. Does any one player know all the cards that all the other players hold?

With all the talk in the oil world, you would think this situation would get more attention. If one can believe the numbers, the Orinoco produces at least 500,000 barrels per day of what would be termed Syncrude in Canada. We have allread about Alberta. With all the fanfare, it produces about 1.2, maybe 1.4 mbpd. So Venezuela is not doing badly. The fact that Big Oil is sitting down to talk rather than simply walking is hugely significant. I would walk if I was an American company. I would go elsewhere. Let Statoil and Total deal with it. Let the Chinese in. Hugo Chavez will be dead one day. If Big Oil is going to make concessions to nationalization somewhere, it should be Mexico. Mexico is a friend of the United States. Ignore Chavez and Correa. It isn't worth it.

This lies in the fact that Chavez simply can't put production online fast enough in his lifetime as a political candidate to make a difference in his own personal power equation. The Saudis stand in the way of this. Unless, of course, the Saudis are in terminal decline. Hmm.

Big Oil Faces Tough Talks on Their Stakes in Orinoco Patch
by Peter Millard

Mar 15, 2007

Six western oil majors are sitting down with Hugo Chavez's government to plot the future of the world's largest hydrocarbons basin. But they face a stark choice: Play a supporting, not leading role, and accept less profit from operations involving Venezuela's massive tar oil reserves, or take a hike.

On Wednesday, France's Total (TOT) and Norway's Statoil (STO) set up a "transition team" to hand day-to-day operations at the Sincor project over to the state oil company, and meet a June 26 deadline to draft a new corporate structure. Partners in the other three heavy oil ventures have set up similar technical and negotiating teams over the past month.

Venezuela has come to epitomize resurgent oil nationalism, where resource-rich states such as Russia and Algeria force less-attractive terms on international energy firms from oil-importing countries. The Orinoco talks will show other petro-states just how far they can push the oil majors before these firms hit the road.

The tar oil, located in an area the size of Kuwait alongside the Orinoco river, is one of two so-called unconventional oil regions that will be key to meeting world oil demand for decades to come. The other is Alberta's tar sands, which supply an increasing percentage of U.S. oil imports.

The upcoming negotiations encompass future equity stakes, compensation, financial, commercial and operational arrangements. The six companies have an estimated value of some $30 billion in the projects, which together now produce around 525,000 barrels a day of synthetic crude but have a capacity of 600,000 barrels a day. The projects also have a total $4 billion in outstanding commercial bonds and bank loans.

Chavez, a fierce nationalist who is wiping out private ownership of "strategic" areas of the economy such as energy, power and communications, began unwinding the previous Orinoco contracts in 2004 as oil prices entered a sustained rally.

After hiking taxes and royalties, Chavez is now going for majority control, insisting on a minimum equity stake of 60% in each venture.

It is unclear how much of a say the majors will have over the projects. At the start of this year, Oil Minister Rafael Ramirez announced Orinoco negotiations had ended, saying the companies would have to accept Venezuela's terms after failing to meet the first end-2006 deadline.

Since then, he has toned down the rhetoric, saying this week he would like these
companies to remain as minority partners and that negotiations could go on past
the end-June deadline. Just the same, Venezuela has a history of heavy-handed
treatment.

These six companies were hit with a 2004 royalty hike with no warning - Chavez made the announcement on national television. The government also set the new negotiating deadline unilaterally through a decree. Many of these firms, including Chevron Corp. (CVX) and ConocoPhillips (COP), have said Venezuela was slow in launching talks.

Ramirez also announced a scheme to compensate these firms with crude oil instead of cash before three of the transition teams had been established, indicating the government will continue setting the new terms with little to no consultation.

Big Oil took a gamble in the Orinoco in the 1990s, setting up four huge projects to extract the extra-heavy crude and upgrade it into low-carbon synthetic grades that can be processed in most foreign refineries.

At the time these companies - which also include Exxon Mobil Corp. (XOM) and BP Plc. (BP) - won substantial tax breaks to compensate for the high cost structure at a time of rock-bottom oil prices.

In private, executives at these firms regret not negotiating with the government as a group, which could have increased their leverage in current talks. Divergent positions made it difficult to form a unified front.

Exxon is the only firm to publicly say it could leave if profitability is too low. The company, with more booked reserves than any of the other majors involved, has taken a harder line with Venezuela since 2004. At one point it suggested international arbitration over the royalty hike.

Other companies like Chevron and Statoil are said to be willing to suffer through
periods of nearly flat profitability to maintain a foothold in Venezuela, and be
well-placed in case the government offers better terms in the future.

Copyright (c) 2007 Dow Jones & Company, Inc.
URL: http://www.rigzone.com/news/article.asp?a_id=42617

Nationalizing the Orinoco

By Michael J. Economides and Xiomara Sangronis

Mar. 09, 2007

The Orinoco Belt, one of Venezuela’s richest deposits of heavy oil, will soon be under the complete control of PDVSA. On January 10, at a speech before the National Assembly, Venezuelan president Hugo Chávez said that the Orinoco oil projects should switch to state hands. He also announced that the Venezuelan government will take control of the Orinoco fields (currently operated by companies from the U.S., France, Norway, and the U.K.) by May 1.

“We want to negotiate…but I have given instructions that on May first when the sun gets up, we will have all those oil fields under our control,” said Chávez in a subsequent press conference. “If someone does not agree, he has the right to go away…but we are going to respect their rights,” he said.

He went on to say that the companies “will accept this because we are going to continue being partners.” The outside companies will be allowed to invest as minority partners on joint ventures. “The company that wants to stay as our partner, we left the possibility open to them. The one that does not want to stay as minority partner, return the oil field and goodbye…good luck, thank you very much,” he said. Chávez also claimed that the process would allow “PDVSA, and therefore the nation,” to save some $6 billion.

The Orinoco Belt covers some 55,000 square kilometers and contains up to 1.3 trillion barrels of extra-heavy crude with an expected recovery of about 20 percent. If that rate is realized, an international certification of the Orinoco’s reserves, expected next year, could place Venezuela either equal to or surpassing Saudi Arabia with its 264 billion
barrels of reserves. Production in the Orinoco is currently about 566,000 barrels per day of crude with an API gravity of 9. That oil is then upgraded to a much lighter 34 degrees API by heating and hydrogen injection. This is done at the petrochemical complex in Jose, about 250 kilometers east of Caracas.

At present, there are four major projects underway in the Orinoco, all of which are called “associations.”

- Sincor: Total, 47 percent, Statoil, 15 percent, and PDVSA, 38 percent.

- Petrozuata: ConocoPhillips, 50.1 percent, and PDVSA, 49.9 percent.

- Ameriven: ConocoPhillips, 40 percent, Chevron, 30 percent, and PDVSA, 30 percent.

- Cerro Negro: PDVSA, 41.67 percent, Exxon Mobil, 41.67 percent, and BP, 16.67 percent.

Rafael Ramírez, Venezuela’s energy minister, recently said that since he has been negotiating with the international companies for months, the nationalization should not be a “surprise for anybody.” Given that history, he said there is “no possible negotiation whatsoever. Nationalization will be implemented under a law, the draft of which has been completed.” PDVSA, through its affiliate Venezuelan Petroleum Corporation, will also gain control of the oil firms involved in upgrading the Orinoco’s crude. Ramírez explained that the government’s goal is to standardize the upgrading operations and gain the means to better implement “governmental decisions, such as output cuts under OPEC.”

Although the Venezuelan oil industry was originally nationalized in the 1970s, Ramírez claimed that the move regarding the Orinoco was no more than a further nationalization because, in the past, neither the country’s constitution, nor the laws governing hydrocarbons, specifically defined control over the region.

The move by Chávez to take over the Orinoco was greeted with skepticism from the U.S. government. “This is a disturbing trend, far from the principles of transparency and open markets,” said Craig Stevens, a spokesman for the U.S. Department of Energy. Stevens said the move will be “to the detriment of the Venezuelan people, the long-term development of the country’s national resources, and ultimately, economic
growth.”

http://www.energytribune.com/articles.cfm?aid=413